COLLEGE AND MONEY; College, What a Deal!

By DAVID LEONHARDT

Published: April 20, 2008

ON Oct. 2, 2003, board members at the University of Virginia filed into the Upper East Oval Room of the Rotunda, the centerpiece of Thomas Jefferson's campus design, for one of their regular meetings. As usual, they were joined by the university's top administrators. Just before the meeting began, a member of U.Va.'s public affairs staff walked over to John T. Casteen III, the university president, to hand him a clipping from that morning's newspaper.

The clipping described a sweeping new financial-aid program that the University of North Carolina had just announced. North Carolina was going to cover nearly the full cost of any student whose family made less than 150 percent of the poverty level or, for a family of four, about $30,000 in today's dollars. Students would still have to work 10 to 12 hours a week in a campus job, but they would not have to take out any loans.

At the time, it was one of the most aggressive aid programs at any major university.

The program touched a nerve with Mr. Casteen. The son of a shipyard worker from Portsmouth, in the southeastern corner of the state, he was the first member of his family to attend college. But during his 13 years as president, tuition had risen significantly, as it had at many colleges, and the Virginia campus had become even more dominated by upper-middle-class students. North Carolina's new policy, which had the potential to lure students away from Virginia, could aggravate the situation.

Before the meeting had ended, Mr. Casteen announced to the room that he wanted the financial-aid staff to come up with a response. He wanted it quickly, he said, and he wanted something bigger than what North Carolina was doing. Four months later, at the board's next meeting, it approved a plan that was similar but somewhat more generous than North Carolina's. Making sure everyone had a chance to attend college, Mr. Casteen would say, was ''a fundamental obligation of a free culture.''

That same spring, officials at Harvard had been working on their own plan. Three weeks after Virginia's announcement, Lawrence H. Summers, then Harvard's president, traveled to Miami to give a speech titled ''Higher Education and the American Dream.'' In it, he alluded to Jefferson's views on the importance of educating poor and rich alike, and he decried the paucity of low-income students on college campuses. The punch line came toward the end of the speech, when Mr. Summers raised the bar on North Carolina and Virginia. Harvard would cover nearly the full college cost for any student whose family made less than $40,000.

The financial-aid bidding war at the nation's top universities was under way.

North Carolina soon expanded its program, to cover 200 percent of the poverty level, or $41,300 today. In 2005, Yale undergraduates occupied the admissions office to demand that their university increase aid, and administrators soon did. The University of Maryland came forward with a plan. So did the Massachusetts Institute of Technology, the University of Pennsylvania and Stanford. In 2006, Harvard raised the bar again, saying parents making less than $60,000 would not have to pay anything toward the cost of their child's education.

All of these moves focused on low- and middle-income students -- an ever-rarer breed at elite universities over the last generation. But in 2007, the bidding war took on a new character: it began to address the concerns of the upper middle class as well. In July, Amherst College announced it would eliminate loans for all students, no matter their income. In December, Harvard -- under Congressional pressure, like other wealthy colleges, to spend more of its endowment -- introduced a policy under which most families making less than $180,000 a year would receive significant aid. For all but the most affluent 3 or 4 percent of the population, Harvard would be roughly as expensive as many state universities.

Harvard being Harvard, the policy received a huge amount of attention, and set in motion a frenzy that made the previous few years of dueling announcements look leisurely by comparison. Within weeks, Yale went as far as Harvard had, while Bowdoin, Colby, Dartmouth, Haverford, Pomona and others came up with their own -- usually less generous -- policies.

In less than five years, the entire tuition and financial aid system at the nation's top colleges has been overhauled. Today, it looks a lot like a highly progressive tax code, in which the affluent are bearing an enormous share of the overall tuition burden. No matter how high the published cost -- almost $50,000, typically -- these top universities have become significantly more affordable for the majority of students.

It may be the first time that has ever happened.

The changes have not been greeted with a chorus of joy, however. At colleges without large endowments, administrators are worried about the pressure they will face. Some have suggested that they may end up reducing aid to low-income students to compete for more affluent students, who typically have higher test scores and thus help an institution's ranking in U.S. News & World Report. In the past, these colleges were able to woo some students away from the Ivy League with merit scholarships.